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The Chinese yuan, also known as the renminbi, is already convertible under the current account - the broadest measure of trade in goods and services. However, the capital account, which covers portfolio investment and borrowing, is still closely managed by Beijing because of worries about abrupt capital flows.

Officials in charge of an environmental protection bureau in Shanxi misused more than 30 million yuan from a pollution treatment fund over five years.

The Shanxi Environmental Protection Bureau and its affiliate, the Shanxi Environmental Fund, used the money to rent and build office buildings, deposited some of it in local banks and even used it to invest in a brokerage firm, the National Audit Office was quoted by the People's Daily as saying.

Shanxi is one of the country's coal mining centres, with reserves accounting for 27 per cent of the national total. Pollution in the area is severe, resulting in the highest birth defect rate in China.

The latest figures from the state statistics bureau show the national birth defect rate was 9.96 per thousand in 1996, the highest in the world. In Shanxi, the figure was 18.98 per thousand. Experts say the seriously polluted environment has caused many of these physical and mental defects.

When the bureau's most senior official was transferred, the new head thought it would be a good idea to own a new office building.

So in 2001, 10 million yuan earmarked for a pollution treatment fund was instead used to build a nine-floor building.

In 1999, the bureau applied to receive 11.86 million yuan from the provincial government to upgrade its pollution monitoring facilities. But bureau administrators used the money to rent and decorate an office building.

The bureau's affiliate, the Shanxi Environment Fund, meanwhile, deposited 7 million yuan taken from an environmental protection fund in a branch of the Taiyuan City Commercial Bank from June 2001 to April last year.

The bank promised high returns and the company made 900,000 yuan in interest. But only 150,000 of that was included in its books to avoid auditing and tax payments.